Opinion: Five ways to boost SME share of Govt ICT spend

John Hilvert goes into bat for small businesses in the ICT sector.

The Federal Government has given mixed signals to Australia's small business market when it comes to competing for share of its ICT spend.

According to a shelved report uncovered by iTnews today, SME participation has been stagnant at about 25 percent since 2003.

Prime Minister Kevin Rudd pledged during his election campaign that SMEs would get a bigger share of Government IT deals – but the immediate results after his election do not reveal a great deal of growth for the small business sector.

SME deals - at least as prime contractors - improved over the period, but remained below the peak of just under 30 percent established in 2003-04. No further reports were commissioned for 2008-09 and 2009-10.

The Government had attempted to approach the problem with three initiatives:

 1. Australian Industry Participation Plans

Since 1 January 2010, companies bidding for large Commonwealth procurements (generally above $20 million) had to prepare and implement Australian Industry Participation (AIP) Plans. AIP Plans are not meant to be like local off-set plans but intended to show how a “full, fair and reasonable” opportunity was given for capable Australian suppliers to contribute.

Only 21 contracts have been executed of this size, according to AusTender. Two thirds are Defence-related with the remainder accounted for by the Australian Taxation Office, Centrelink, Finance, and Human Services. Little more is known about the plans or their impact.

2. The IT Supplier Advocate Program

Former EDS executive Don Easter was appointed as the first IT Supplier Advocate in April last year. It is a part time position under which Easter is paid some $40,000 a year for around 40 days of work.

Easter describes his position as a "strategic intermediary", gathering feedback on the needs of government customers and ensuring the industry's development projects are aligned with responding to those needs. He stressed the Supplier Advocate Program is not about doing anything charitable for industry, but "rather it is about supporting industry-led projects in a way that materially enhances their worth."

3. Strategic Sourcing

From a market perspective there are just two ways that SMEs do Government IT deals. One is through industry panels that offer various IT products and services.

The other is to sub-contract with one of the dominant prime contractors such as IBM, EDS, CSC or Accenture which do larger volumes of business with the bigger agencies, which dominate the Government’s ICT spend.

The Gershon Inquiry accelerated moves to consolidate and centralise Government procurement and the rise in "strategic sourcing" policies. This was designed to enable larger agency CIOs to deal with fewer larger suppliers and thus have "one throat to choke”.

This in turn led to a spurt in "partnership arrangements" between larger and small IT contractors to ensure a seat at the bidding table.

In turn, IT panels were consolidated as part of the Gershon reforms, arousing industry concerns about the impact on small businesses.

In principle panel consolidation was welcomed, as the rationalising of 87 panels to four could make dealing with Government simpler. But three matters troubled the SME members of the Australian Information Industry Association: proposed fees of around $2000 a company to participate in a panel, reverse auctions (which made price the key consideration in any decision), and procurement thresholds (any purchase over $200,000 was subject to a different set of rules).

The SMEs in Canberra could be forgiven for seeing mixed signals. They were expected to prosper through partnerships with larger contractors - if they wanted the business of the larger agencies. If not, they had to take their chances on four but much larger industry panels with arguable barriers to entry.

AGIMO's reverse auction proposal, for example, implied a heightened focus on price that many SMEs felt discounted their niche values of innovation and flexibility.

But it need not be that way. Here are five ways the Government could open up and improve the SME supplier’s outlook.

1. The Government should issue statistical reports of SME participation - as per the Intermedium study - which was halted two years ago. The lack of data on the current position seems unwarranted and serves no one.
2. Non-SME contractors should spell out in their tender offerings the extent to which their tenders favour SME sub-contractors.
3. The Australian Industry Participation Plans should be publicly released and their impacts independently audited and reported.
4. AGIMO needs to re-think the conditions of its panel consolidation plans. Being on a panel is crucial for SME survival. If AGIMO's consolidated panels are to proceed, they should avoid unnecessary entry fees, reverse auctions or unduly low price thresholds in at least the first three years.
5. The Government should clarify what it expects of the IT Supplier Advocate and review its resourcing and effectiveness after three years.

What do you think? What sort of government initiatives best foster the development of a thriving small business community?